Price Action on Daily & 4H Charts- No More Indicators, News or Smaller Time Frames


The Daily Chart below shows that after breaking out of the large Pennant setup recently, the pair appears to be forming a Range just below the Support of that Pennant.


Taking a wider view, we can see that this possible Range setup is also taking place on top of the Resistance of a much larger Pennant on the Monthly Chart.


This would explain the long period of indecision and volatility for this pair over the last few months. The larger the Consolidation, the larger and longer the time it can take for the pair to either breakout or return inside of the Consolidation.

In order for us to start a downtrend to the other end of the Pennant, we will need a convincing break below this major Resistance and the Uptrend Line.


This movement in favour of the USD would be in sync with the reduction of interest rates by the European Central Bank that narrowed the Interest Rate Differential between the EURO and the USD. If this bearish breakout does not materialize, however, then the alternate scenario is that of a bullish breakout. This would mean that the Resistance boundary of the Monthly Pennant is acting as a Support, from which the currency pair will rally to resume the uptrend on the Daily Chart. It would also effectively render the current bearish breakout from the Daily Chart´s Pennant a False Breakout.


Ultimately, the combination of Economic data, Monetary Policy and Investor Sentiment will determine market direction. Whichever direction the currency pairs takes, it is likely to move by several hundreds of pips given the strength of the crossroads at which it is right now. To take advantage of the expected breakout, we will need to patiently wait on the right setups and signals, then confidently execute trades for strong gains.



Following a strong False Breakout rally for the Kiwi against the US Dollar, the currency pair has now settled above the Resistance of its Range just 10 Pips away from a major Resistance formed 3 years ago. If this price is hit over the next few days, we are likely to see a sharp decline of several hundred Pips that carries it back inside the Range and possibly even lower over the next few months.

The Daily Chart below shows the False Breakout below the Support of the Range that turned into the sharp rally over the last few weeks.


Despite the fact that False Breakouts usually lead to a break at the other end of the Consolidation, the Bull Candles above the Resistance have so far been very weak. This gives us a very small probability of a continued breakout that supports further gains for the Kiwi. One reason for this might be due to the fact that we are very close to a major Resistance that was formed in August of 2011- a major Resistance that has not yet been tested.

As we can see from the graphs below, this Resistance was formed when the strong 2-year rally came to an end and led to the formation of a large Pennant setup. Any Resistance or Support price formed when a major trend comes to an end is likely to lead to sharp reversals when tested for the first time. Whenever such a test is close to taking place, the market tends to hesitate ahead of this test-partly due its significance and partly because of the growing expectations of the trend reversal to follow.



Assuming that the market will rally to hit this Resistance, let´s see what is likely to take place thereafter. This pullback would take us back inside of the Range where it could continue to oscillate between Support and Resistance, moving by 230 Pips on each occasion.


If the Candlestick Signals are strong enough with little volatility, trading within this Range can be very profitable. ABC Signals, Consolidation breaks and Trend Line breaks are possible signals that could provide entry signals inside of this setup.

Alternately, instead of continuing to move inside of the Range, the pullback at Resistance could lead to an even stronger breakout that breaches the Support, the Resistance of the large Pennant and an Uptrend Line. This would take us down to the 0,7900 area of Support over the next few months, as the US Dollar recovers lost ground of over 900 Pips.


Trading this breakout would also involve the use of ABC Signals, Consolidation breakouts as well as Counter Trend Line breaks. Trades can be held for a much longer period over the course of weeks or months, with less monitoring required compared to trading within Ranges.

Under both scenarios, the signals and the corresponding setups given on the Daily and 4 Hour Charts need to be strong and clear enough. Once these are provided and the trade meets the other criteria established to justify entry, consecutive gains will be realized by traders.



As we continue to struggle in a very low liquidity environment for the Currency Market, the USD JPY has also fallen victim to the absence of meaningful, tradeable volatility. This has led to the formation of a 145-Pip Range within which the pair has moved since the middle of April this year. Short-term aggressive traders may have profited from this period of market indecision by trading between Support and Resistance despite the erratic nature of the candles. However, those focused on the larger picture could be rewarded for their patience with a strong bearish breakout of 300 Pips that seems to be looming following the break of two previous Uptrend Lines.

The chart below shows the Range within which we have been for the last 3 months. Traders who enter and use the Resistance and Support boundaries for Stop Losses would have done so at the 102,75 and 101,30 price areas, respectively.


Trading based solely on Support and Resistance without strong candle signals can be a very risk strategy given the possibility of large price spikes at these areas. The absence of such strong candle signals also leads to unexpected Double Tops and Bottoms that appear at the mid-point of these Ranges. On the other hand, if these Range traders were to instead take a broader look at this currency pair, they would see the potential for even larger gains in the next few days.

The chart below shows that this Range is actually sitting atop the Outer Trend Line that has been in place since November of 2012. We can also see that the movement to this Trend Line followed the break of two Inner Trend Lines.


In general, trend reversals tend to occur whenever there are successive breaks of trend lines and/or long periods of indecision and sideways patterns. Whenever they are as large as the patterns that we are seeing here, however, they are usually associated with a major change in investor sentiment such as with the GBP USD prior to the safe-haven trading of 2008;


Given that we are seeing something very similar with the USD JPY, we are very likely to see a significant trend change associated with another major shift in market sentiment. If this actually takes place, it is likely to start with a break of the Support of the current Range setup.


Even though such a major trend change could last for several months, let’s examine what can take place in the very short-run period of 7 to 14 days.

As the breakout begins, there will be several price points of Support to provide traders with good exits for their trades. However, given the precocious nature of breakouts, the trader would need to know beforehand that a particular Support point targeted for profit, will in fact be hit before the trend ends.

This is where the concept of the Breakout Equivalent becomes useful. It measures the distance over which the breakout is expected to take place before coming to a slow or abrupt end. Knowledge of this price and how to measure it allows traders to set their pre-determined pip targets with greater certainty and avoid the trap of unexpected reversals. If this breakout actually takes place in favour of the Japanese Yen, the Breakout Equivalent target would be at 98,40, some 300 Pips away from the current price.

This concept can be seen throughout the Currency Market, with the USD CAD providing a very recent example.


In this case, the Breakout Equivalent took us very close to a major Uptrend Line that started in September of 2012. You will also notice that the breakout signal was strong enough to give traders the added confidence that we would not fall into the trap of a False Breakout to go long. Once a strong enough signal is given to start a breakout, pre-determined targets can be comfortably set to capture between 100 and 200 Pips (125 Pips in this example).

Another major issue related to these setups is the holding period for our trades. Breakouts can last anywhere from a few days to a few weeks depending on the speed of the market and the size of the Consolidation. This means that two currency pairs with similar size Ranges can reach their respective target at different times. Given that we do not necessarily want to hold our trades open indefinitely, what would determine our decision to stay in these trades for 4, 7, 10 or 14 days?



The Pound Sterling has been in a steady uptrend over the last few months in keeping with growing expectations of a rate increase by the Bank of England. This has led to very profitable trading opportunities for Swing Traders who are patient enough to hold on to their trades for several days at a time. One such opportunity presented itself several days ago when there was a strong break of a Counter Trend Line (CTL) that appeared to indicate the resumption of the trend. However, this signal was one to have avoided given its proximity to the Weekly Range- an important price barrier that all currency pairs obey before pulling back. Those lucky enough to have spotted this price barrier would have easily avoided the pullback and been able to hold on to their trading gains.

In the chart below, we can see that the most recent uptrend began with a breakout from a Pennant Consolidation Setup. This led to price gains of several hundred pips over the next few days before pausing to pullback and form this CTL Setup. Following this pullback, another Bull Candle was provided to signal another entry possibility to capture more pips in the direction of the Pound.


As tempting as this appeared to be, caution needed to have been exercised here. Given that we were very close to the Weekly Range, entry at this latest signal would have led to a floating loss for several days or Stop Losses being triggered. The better option is always to wait on the sidelines until the currency pair goes through its natural cycle of pullbacks at these areas and then provides another signal to start a new Weekly Range trend.


Such an opportunity could come from another strong break of the latest CTL or a Consolidation that could also be formed in the next couple of days. In either case, the price area of 1,7485 could be the next Weekly Range target to be hit for more trading gains, once the right setup is provided.



This pair has given us a bullish candle break of the Resistance of its Pennant, signalling its intention to rally to the Outer Trend Line. However, the size of the candle is too weak and does not warrant entering to capture the `tempting´ 70 Pips on offer.




As you can see, the currency broke above the Inner Trend Line of the previous downtrend. Normally whenever major Inner Trend Lines are broken after such a long trend, the currency tends to move to the Outer Trend Line if there is one. If the setup and the signals are strong enough then, the currency normally goes to that target with little volatility. However, the weaker the setup and /or signal, the less chance it has of going there -without excess volatility-and the more likely it will resume the original trend.

The candle to left is an example of the candle size expected/preferred for breakouts.


The weaker the candle, the greater the chance of a false breakout- the stronger it is, the more successful your trade will be.

More examples of this analysis can be found at DRFX TRADING - PRICE ACTION FOREX TRADING where you can also get the Manual that goes indepth into distinguishing between weak and strong signals.


The Aussie-Dollar pair has definitely been testing the patience of traders over the last few weeks, with an extended period of Consolidation above the most recent Uptrend Line. This period of market indecision could either be a setup to resume the current uptrend, or lead to the break of the Uptrend Line to start a downtrend. With the Monthly Range of this pair having been hit (see Trade Manual) and the possible formation of an even larger Pennant taking place, a bearish reversal looks to be the more likely outcome for the rest of 2014.

Both a Pennant and a Small Range have now been formed as the pair slowly drifts sideways below the Uptrend Line. The rally between 1 and 2 and then between 3 and 4 represented the 2 Weekly Ranges that completed the Monthly Range. As with all currency pairs, strong periods of Consolidation are normally formed ahead of either a resumption of the trend or that start of an opposing one.


One reason to support a bearish bias is the fact that we were in a large downtrend that formed with the breakout from a Pennant in 2013. Previous trends can still continue even when the Trend Line has been broken.


A 2nd reason to expect the depreciation of the Aussie currency is that there have been 3 successive waves of Uptrends and Downtrends that are usually indicative of a large Consolidation setup being formed. The bearish breakout below this Uptrend Line would be the fourth wave and the one that would create the 2nd Resistance point of the Pennant.


Finally, the break of this Uptrend Line is likely to take place based on one of the peculiar aspects of the currency market. Sometimes when there is about to be a trend change, the market will make a last gasp new high or low that changes the angle of the existing Trend Line. When this happens, the market will then break this line to start the new trend.


The previous Uptrend Line was formed by connecting the S1 and S2 Support points, but when the new high was formed, the 2nd connecting Support point changed to the one below the Pennant.


Several other examples of this can be found across all time frames and with all currency pairs. These types of Trend Line changes may be thought of as mere coincidences, but the frequency with which they occur makes this unlikely. Traders can use this knowledge to anticipate a trend change especially if the existing trend has had a very long run followed by a period of Consolidation.

The fact that several of the most popular and liquid currency pairs have also been in Consolidation supports the bearish scenario for the Aussie Dollar. Trends have been few and far between in an environment of low volatility and minimal interest rate differentials. Therefore, identifying and knowing how to trade these setups will allow traders to continue to make money.


More Information on Consolidations, Breakouts and Trend Lines can be found on my Trading Blog,


Great and useful analysis.

Thanks, more to come

After what seemed like an eternity, we have finally got what appears to be a meaningful signal from the EURO USD that could indicate the start of a profitable trend. The pair had been meandering sideways for months above the Resistance of a major Monthly Pennant, forming a smaller Pennant on the Daily Chart in the process. Having formed an even smaller Pennant at the Weekly Range following the break of Support of that Pennant, a strong Bearish Candle Signal has now appeared. Although this might represent the start of further USD gains in the months ahead, a closer look at the price targets indicates the potential for short-term volatility that should be avoided.

A look at the first chart shows the large Monthly Pennant that this pair has been in since the end of the sharp gains for the USD in 2008. We can also see the current area of price congestion above the Resistance of this Consolidation and the Inner & Outer Uptrend Lines.


A closer look at this area above Resistance shows the Pennant on the Daily Chart that was formed and then subsequently broken. There was a brief pause in this breakout at the Weekly Range to from an even smaller Pennant on top of the Outer Uptrend Line and the Monthly Pennant’s Resistance.


As with most types of breakouts from Pennants of this size, the trend usually comes to a temporary end at the Weekly Range before continuing. Having completed this ‘mandatory’ break, the signal to indicate the continuation of the breakout was given today, July 22, 2014. This candle simultaneously broke the Support of the small Pennant, the Resistance of the Monthly Pennant as well as the Outer Uptrend Line.


This setup and signal given here are very strong and under most circumstances would justify an entry to go short. However, the proximity of the Breakout Equivalent (BE) to the Breakout Candle of only 100 Pips suggests that a short position may not be that feasible.

With all Consolidations, the BE measures the price at which the breakout is expected to end. If this price is going to be hit ahead of the Weekly Range (WR), the breakout usually ends at the BE. If the WR is closer than the BE, then the market would break beyond the WR to hit the BE. The BE is therefore the price target that Consolidation breakouts will go towards regardless of the proximity of other price targets. However, I have found that if the distance between the start of the breakout and the BE is 100 Pips or smaller, the movement can become volatile and may not actually hit any of its targets. Ideally, a distance of at least 130 Pips is needed to ensure that a strong breakout with minimal volatility will take place.

These rules related to breakouts are very important for traders to be aware of when looking to take advantage of these strong setups. Breakouts can offer very fast and profitable trades and they can be all the more appealing when the market has not been offering that many opportunities. However, the knowledge of and the adherence to these small details can make all the difference between a successfully hit target and an unexpected reversal and trading loss.


More Examples of Consolidations, Breakout Equivalents & Weekly Ranges can be found at



Wow…these markets are really dead… admittedely I have missed a couple in last 3 weeks, but more setups are usually seen to make up for those…what gives?

One drawback of Swing Trading is the time in between trades, but the setups are not normally these far apart. Wonder how the Day Traders are doing…

How much of it is related to low interest rate policy & lack of interest rate differentials, market investigations into corrupt practices?

Hi Dr - sorry I have not been back - NzdUsd I am thinking a more demand and supply area around .8530(demand) and bounce up. Next week is FOMC and the US dollar index looks very bullish which could be counter productive to aussie and kiwi going up - on the other hand 3.5% carry trade is very nice - I am going to put a buy on kiwi at .8540 - how are you doing

Hey, I been watching paint dry…from one paint colour/pair to another lol

Markets been sideways and volatile, hardly any trading chances for my strategy. Central bank policies really stifling trends. However, they look very similar to the patterns seen before the 2007/08 financial crisis breakouts and the 2011 European Sov. Debt Crisis, so some strong trends might be around the corner. This comparison is the subject of my next article here and in my trading blog

That Kiwi been in a Range for quite a while on the Daily Chart and was at Resistance getting ready to drop as has done now. I see it hitting the Support soon as well as the Inner Uptrend Line which would coincide with your buy area.

Hopefully the FOMC gives a boost to the USD with other pairs as well. (more aggressive tapering) If it is strong enough, then it could break those Uptrend Lines and head to the Support of the large Pennant setup.

What would your Pip target be at that bounce?

Hi Dr - I was thinking those stack of orders at .8650 looks like a good retest - that will be my target - but I am looking at .8521 - the last time price went down to reload it drove straight through. I think those buys are done - .8434 may be the next low -

Doc take alook at tradingview on the supply and demand thread one of the posters did a nice supply and demand break down of the pound

I really dont pay attention to supply demand zones. I keep it simple. Looking at it again today, I should have traded this for an easy 156 Pips from Resistance. Been spending more time promoting my Manual etc. than trading…my subscribers will be pissed


As part of my Day Trading arsenal a few months ago, I used to go after 100 Pip movements using the 30 Minute Charts, exiting within 24 to 36 Hours. The Daily and 4 Hour Charts were used to provide the major setup while the patterns and breakout signals on the 30 Minute Charts were used for Stop Losses, Entry and Targets.

This worked for awhile with moderate results, but the weight of the negative habits and difficulties of smaller time frame trading eventually took their toll on this strategy, shortening its lifespan. This was one of several failed strategies that eventually led to the more profitable strategy on the higher time frames that I now trade and promote. Take a look at this 100-Pip strategy and let me know if you could have continued with it or improved on it in anyway.

These were the main aspects of the strategy.

[li] Wait on the Daily Chart to give Signal/Direction;
[/li][li] Wait on the 4 Hour Chart to provide a Setup;
[/li][li] Enter at the 30 Minute Signal that breaks the 4H Setup Barrier;
[/li][li] Only Enter at Signals given between 5 00 GMT and 17 00 GMT;
[/li][li] Set target for 100 Pips;
[/li][li] Hold Trade no later than 21 00 GMT the next day;

The Daily Chart provided the main direction for the trend. I would wait until the appropriate signal was given to start a new trend or to continue the existing trend. Whenever this signal was given, the 4H Chart usually provided a Counter Trend Line or a Consolidation setup. I would then look at the 30 Minute Chart to see the start of the breakout from this 4 Hour setup and enter accordingly. This signal had to be provided between that time period, as those were the signals that had a high chance of being the correct ones that led to the breakout. That timeframe is also useful for Day Traders who enter and exit on the same day. If they entered within that period, the best time to exit would be at 17 00 GMT as the Daily Range for most currencies ended at that time.

Here was a typical trade setup.


Shortly after that signal was given, the 4 Hour Chart gave this Counter Trend Line (CTL) setup.


To then trade the expected breakout, I would go to down to the 30 Minute Chart to determine the boundary to be broken and the Stop Loss area. In this case, the setup was an Uptrend Line with a Small Range.


The signal came within the designated time period on Friday June 21, 2014 with the Stop Loss Placed below the Trend Line. The 100-Pip target would be set and then hit on Monday June 24 at 10 30 GMT, effectively within the Holding Period limit, ignoring Saturday and Sunday.


This was the basic principle behind these trades. The Daily Chart had to give the signal and the 30 Minute and 4 Hour setups needed to be strong and clear. You entered the trade, left it and then only checked it when the Holding Period was up or the trade was Stopped Out/Target hit.

However, one of the problems with the strategy was that the Stop Losses were often large. A good setup provided a Stop Loss of no more than 40-50 Pips to give a Risk-Reward of 2.0 to 2.5. But sometimes the Stop Losses were more, cutting the Risk-Reward and the overall profitability if there were losses along the way. At times, the setups would also change from being a Pennant to Range or a False Breakout would take place to take out the trade.

Also, since one was focused on the quick 100 Pip move, one often overlooked important details on the larger charts that indicated that the breakout would not go to the target. The Daily Chart may have given a good signal, but this may have been the last signal before it hit a major price point that would lead to a trend change. One also became more anxious after a trade loss because of the limited time in between trade opportunities to recover. This gave me Beer Goggles that made otherwise risky, unattractive setups look tradeable due to the desire to recoup losses as quickly as possible.

These were some of the basic drawbacks to the strategy that made it unsustainable. Combined with the long 12 hour wait for the perfect signal in the early hours following only 4 or 5 hours of sleep and the volalitly of smaller time frames generally, this could not continue. The Daily and 4 Hour charts on the other hand gave fewer False Signals with more reliable setups. This allowed me to take the time to carefully assess the market and generate regular, profitable trades with less stress and volatility.

Stick to the Higher Time Frames and Success will also be yours.


At the start of a trend on the Daily and 4 Hour Charts, one will notice a unique relationship between these charts that is also replicated on other time frames. For every candle seen on a Larger Time Frame, there is a setup and signal on a corresponding Lower Time Frame that led to that candle. Then, in a recursive manner, every candle on the Larger Time Frame that is going to lead to a trend, produces another setup and signal on the Lower Time Frame in response to that candle. To make this even more complicated, the time it takes for the Lower Time Frame to respond to that signal is approximately the same as the Larger Time Frame.

This relationship takes place between all Higher Time Frames and Lower Time Frames that are directly linked to each other, from the Monthly Chart down to the 1 Minute Chart. Here are the pairs of time frames that are directly linked to each other that follow this pattern of setups and signals.


The graph below shows this relationship between the Daily and 4H Charts. This took place on the AUD NZD on April 30 this year with the start of a Bear Crown formation.


The signal for the Right Tip of the formation was provided with a break of a Counter Trend Line. It was part of a Trend Line break at the Resistance of a newly formed Pennant. The 4 Hour Chart below shows the setup that led to that signal.


Following this Daily Signal, the 4H Chart provided a follow-up signal in the form of a Bearish U-turn (Evening Star) after 24 hours (four 4 H candles preceded the Bear Signal).


You will see this relationship played out on most trends on these time frames across the currency market. This dynamic allows the trader to anticipate a setup that can be traded after the Higher Time Frame has provided the signal. It also helps in anticipating False Signals as well. If the signal given on the Higher Time Frame will not lead to a successful trend, then the Lower Time Frame will not produce a follow-up signal. This can happen when the market has hit a major price point that will lead to a reversal.

The other useful aspect of these signals and setups is that one can determine the type of setup to expect on the Lower Time Frame. If these are in sync between both time frames, it gives added confirmation that the trade will be successful. So how do we know which setups to expect on the Lower Time Frames so that we do not enter prematurely to then get stopped out?

The black lines are the trend lines the pink lines basically is the weekly SAR - the overpaint is RSI - still shows true price - this is the daily - If your in a nice trend it is a shame to enter and exit it within 24hrs -

I like the daily charts - the best - you can not stay in the trend with the 4hr - if you trade it you may come out 30 to 100 pips more - but more likely lose that and some, maybe not even profit at all - I like your trend lines, RSI bars are also good, that is a simple MA cross nice and visual - set stops above it - could use price structure - euro is just completing the 4th wave of a a 5 price structure - daily stochastic also good -

Different strokes for different folks…

I use half of those trend lines you have on your charts…without any indicators at all…keeps my charts clearer and easier to read, but to each his/her own.

If the market price and trend is taking place on the right hand side of the chart, why all those past trend lines on the left hand side? is that part of the wave price structure?